Safe and Sound

First State Bank

2
Star Rating
First State Bank is an FDIC-insured bank started in 1918 and currently based in Commerce, OK. The bank has equity of $327,000 on assets of $7.3 million, according to December 31, 2017, regulatory filings.

Thanks to the work of 6 full-time employees, the bank has amassed loans and leases worth $3.5 million, including $2.3 million worth of real estate loans. U.S. bank customers currently have $6.9 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, First State Bank exhibited a below-average condition, earning 2 out of 5 stars for safety and soundness. Here's a breakdown of how the bank did on the three important criteria Bankrate used to grade U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial stability, capital is essential. It works as a buffer against losses and as protection for accountholders when a bank is experiencing financial instability. When it comes to safety and soundness, more capital is better.

First State Bank received a score of 0 out of a possible 30 points on our test to measure the adequacy of a bank's capital, less than the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. First State Bank's Tier 1 capital ratio was 7.15 percent, exceeding the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather economic downturns.

Overall, First State Bank held equity amounting to 4.48 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to try to understand how the bank's loan loss reserves and overall capitalization could be affected by troubled assets, such as past-due mortgages.

A bank with a large number of these types of assets could eventually be forced to use capital to cover losses, decreasing its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning interest for the bank, pushing down earnings and elevating the risk of a future failure.

First State Bank scored 40 out of a possible 40 points on Bankrate's asset quality test, exceeding the national average of 37.49.

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.61 percent of First State Bank's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's below the national average of 1.01 percent.

Banks keep a reserve to handle troubled assets known as an "allowance for loan and lease losses." The size of that reserve can be a handy indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on First State Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its long-term survivability. A bank can retain its earnings, boosting its capital cushion, or use them to address problematic loans, likely making the bank more resilient in tough times. Conversely, losses take away from a bank's ability to do those things.

First State Bank scored 0 out of a possible 30 on Bankrate's earnings test, coming in below the national average of 15.12.

Return on equity, calculated by dividing net income (profit, basically) by total equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for First State Bank was -244.52 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $-1.8 million on total equity of $327,000. The bank experienced an annualized return on average assets, or ROA, of -19.85 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.00 percent.

WHAT IS SAFE & SOUND?

Bankrate.com's Safe & Sound Ratings provide a star rating system to evaluate the current financial status of financial institutions. The information gathered about banks, credit unions and thrifts is updated as set forth in the Terms of Use of Safe & Sound Ratings and Reports. The Safe & Sound Ratings information is grouped by categories of banks, thrifts and credit unions.

Scoring methodology

Bankrate.com evaluates the financial condition of institutions and assigns a one- to five-star rating for each with five stars representing the highest rating. Institutions with satisfactory performance will generally receive a rating of three or more stars. The majority of institutions fall into the three- to four-star range. An institution with an "NR" rating may be too new to rate or may have limited the publicly available information in their regulatory filings. The "NR" is not an indication of financial strength or weakness. The Safe & Sound rating is believed to be reliable, but the information is not guaranteed. In addition, events since the information was collected may have altered the institution's financial condition.